Australian Economy Grows: Resources, Trade, Investment & Industries - Research Paper

Introduction

The sources of economic growth in Australia are mainly resources such as minerals, skilled labor, technology, trade and investment, industries, and revenue collected. The primary methods of achieving growth of an economy are increasing the quantities of resources, and also their quality. The main resources in Australia are the minerals, oil and natural gas industries. The minerals industry accounts for around eight percent of gross domestic product. Australia' economic growth is expected to moderate in 2019 as private consumption is pulled down by slow wage growth, high household debts and continued correction of the market property while the expansion in fixed investment is constrained by falling construction activity and mining investment.

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Resource and energy are one of the main sources of income for Australia. Australia's resources and energy export volumes are expected to grow fast over 2018-2019 but grow at a slower pace in the year 2019-20. The export values are also expected to reach a record high in the year 2018-2019. The estimated growth in export values in 2017-18 is by eighteen percent, to reach $226 billion. In 2018-19, there is an expectation of a two percent drop in prices which is forecast to partly offset the eight percent increase in volumes of exports resulting to rise by 5.1 percent in the value of resources and energy exports to a record $238 billion.

The prices of minerals are forecast to change in the financial year 2018-19. The price of iron ore is forecast to go down in the coming two years as the production of steel by China reduces while the supply y Brazil and Australia increase. Coal prices are also predicted to fall as there is an increase in supply and reduction in demand mostly by China. The rising value of the US dollar is also expected to impact negatively on gold prices. Base metals such as aluminum and copper are however experiencing a different side of the coin. Due to US sanctions on Rusal, there have been concerns on their supply. Their prices have thus peaked due to a shortage of supply. Also, the lack of mine supply is expected to drive their prices higher in 2019 and 2020.

The mining industry goes on to contribute and support the overall economic growth of Australia. It contributed to twenty-one percent of the growth in Gross Domestic Product (GDP) in 2018. There are also other industries that have grown and are set to grow in the 2018-19 financial year. These include technology, healthcare, and construction.

The construction industry is also one of the rapidly growing economic sectors in Australia. The construction has been increasing steadily due to the growing population in the country. This industry comprises of eight percent of the GDP and is taken to be the largest non-service-related industry and contributes around $134.2 billion to Australia's economy. The total construction is rising by two percent each quarter while the productivity in this industry increases annually by 2.8 percent. The construction industry also provides a lot of people with employment, estimated to around 1.1 million people. There has been the development of software that enables builders to save costs while boosting efficiency and create better construction designs. Construction for commercial purposes is expected to rise by 9.3% in the economic year 2018-19.

Australia's inflation rate has been low and stable since 2015. The low inflation outcome shows the spare capacity in the economy and the low growth in wages that come with it. It also indicates the continuing downward pressure on retail prices due to the increasing competition in the sector. The inflation in tradable items tends to be lower with more volatility compared to inflation in non-tradable items for example housing and education. Inflation in tradable items is influenced by global prices while non-tradable items inflation is influenced by domestic prices.

Growth in labor costs is an important determinant of inflation in non-tradable. This has led to a slowing in market inflation. Market services inflation has been lowered by one-off factors, for example, the removal of ATM fees for withdrawal and the reforms to compulsory third-party insurance schemes which are state-based. There has also been a reduction in prices for telecommunications services and equipment that are technology driven.

Rent inflation also remains low but increased in places such as Melbourne since additional additions to the dwelling stock being absorbed by strong growth in the population. The cost of construction of new apartments has grown at a slow pace compared to the cost of building a house and the price pressures in the cost of building new dwelling places has eased. Most of the construction of residential apartments is occurring in the eastern capital cities leading to the strengthening of the price growth in these places. The overall growth of construction wages remains low while stronger price pressures for firms have been caused by the shortage of specialized labor

The competition in retail continues to pull down consumer prices. There are several factors that have contributed to the ongoing deflation of the retail price. The first one is firmed having to adjust the strategies of their pricing due to the constrained spending in retail and the great competitive pressures over the recent years in the retail industry. Reports from liaison also indicate an increase in the frequency of the periods where products are discounted and an increase in the number of products being discounted. The second factor is the low retail input cost pressures. The rate of growth of retail rent remains low with the exception of rents in the central business districts of Melbourne and Sydney.

Wages are the largest component of costs in business. The low growth of wages over recent years has thus contributed to low inflation outcomes. There are factors that have led to low growth in wages. These include remaining spare capacity in the labor market, broad changes in composition in the labor market, parties expecting the inflation rate to remain low as it has done, the economy adjusting to the end of the mining investment boom while earlier trade terms decline. Wages in the public sector have grown faster than in the private sector. This reflects the higher growth of wages in industries with a high share of employment in the public sector. Many of the firms surveyed in the bank liaison program expect the growth of wages will remain stable.

Even as the inflation outcomes remains low, the inflation expectation has a general consistency with the inflation target. The short-term inflation expected measures remains low though they are higher than they were in 2016. Longer-run inflation measures are lower but remain at around 2.5 percent. Rec...